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issue: November 2005 APPLIANCE Magazine

Rheem Air Conditioning
Turning a New Leaf

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by Erin Biesen, Assistant Editor

The Rheem Air Conditioning Division has made drastic changes in the last 3 years to focus on the customer and regain market share. Rheem was not as strong or competitive as it had once been. In the mid-1980s, Rheem held a 16-percent market share and a complete product line. Its market share declined to 11 percent, with numerous product line gaps, by 2000. New product development was down to one or two product introductions every 3 to 5 years, which contributed to the weakened product line.

Rheem has undergone major changes to regain market share and make the customer the focus.

“We weren’t up to our competition, in that our product development was almost stagnant,” says J.R. Jones, who became president of Rheem in 2002. Rheem management realized a large amount of work would need to be done to get back on track.

Executive Decision

The first set of changes that were made were within the division itself. Several new members of the executive staff were hired in the last 5 years. “The new leadership team is a collection of experts from within the industry. We understand the business and the competition,” says Jones. “In developing our strategic plan, we combined this knowledge with good customer input and feedback.”
The new management team came together to plan new goals and objectives for the company. The company needed to re-establish its brands and regain market share. The team settled on five key objectives that would help the company regain its industry leadership position. These objectives were total cost management, organizational excellence, continuous quality improvement, profitable growth of revenue and market share, and best customer service.
The company follows a goal-setting process where each objective has a short-term and long-term initiative. The short-term looks to the following year, while the long-term looks to the next 2 to 5 years. All the initiatives need to be quantifiable, so that the company can measure results and be fully accountable for achieving its goals. Results such as spending, capital costs and resource management are monitored. Performance at each level is tracked, so results can be measured and understood in relation to achievement of the total plan.
The initiatives are met through a Cascade Planning Process that the company uses to involve all employees. The management meets every year to decide what the major goals are for the year, and it trickles down to heads of departments and factory employees. Rheem Air Conditioning says everyone has goals and initiatives directly related to each Division’s strategic objective, helping everyone to understand their impact on the company’s performance.

Rheem uses a Cascading Planning Process to achieve goals. From the president of the division to the employees building the units, everyone has their own tasks that help to meet the goals.

Product Development

One of the initiatives critical to regaining market share was aggressive product development. The company re-engineered its design process for more efficient development of high quality products.
The product line had designs that were more than 30 years old, and there were many products that the company needed to immediately re-design or risk losing additional market share.
“Over the course of the first 2 years, our small list of projects grew. We ultimately released 24 new products in 18 months,” says Jones.
A lot of this change came from customer input. “We got some of our core customers together and began to ask them what they needed from us—what products, what services,” notes Jones. “As we started asking customers for input, the list of five product projects grew to 24.”
The new product development process (PDP) helped the company meet the expanded list of product redesigns. PDP helps define each of the development stages, making everyone aware of the tasks at hand.
Cross-functional teams are also a new addition and critical to the success of PDP. Previously, the design process was segmented by the various departments. Engineering would develop the product, marketing would bring input, manufacturing would build it, and sales would sell it.
Currently, customer input drives all of the projects, which are championed by cross-functional teams. At the end of each development project and prior to market introduction, the company verifies that customers are satisfied with the final product.
Jones says, “Our success, so far, stems from good processes—adding the resources where we needed to add them, getting the right list of projects, not changing our direction, staying focused on the task and getting good at executing.”
The company says finding the right people to work on the right project is a key element to the process. It’s not only important to make sure that the teams are cross-functional, but also to schedule the teams appropriately. “We put together complete, comprehensive schedules so that we can have overlap in the programs and have engineering, manufacturing and marketing all working on the same project at the same time. That’s a major change from the old way of doing it, where one department would throw it over the wall and hope that somebody was there to catch it,” says Alan Kessler, vice president of Research and Development. “We now have people on the same side of the wall, so to speak.”
According to Chuck Holt, vice president of operations, the company looked to take some of the cost out of the product, improve the quality and improve design manufacturability.
“Any time we redesign a product, we seek to minimize numbers of parts, such as sheet metal parts and purchased parts,” says Holt. “With purchased parts, we have implemented a formal Value Added Analysis process. If we currently bring in two or three components from two or three different suppliers and assemble them, we look to buy that sub-assembly and bring it in as one piece.”
Manufacturing lead times have also decreased under the new process. In the past, it was typical to have an 8-week lead-time, and in the busy summer season lead times could reach 10 to 12 weeks. Now the company uses lean manufacturing processes, Just-In-Time supply logistics and demand flow techniques, resulting in lead times that average 2 weeks on most residential products and as low as 5 days on commercial products.

Rheem cuts and bends all of its copper tubing, which makes it easier to keep track of supplies. Then employees hand-lace every coil.

Culture Shock

In order to achieve all of the goals and objectives set by the leadership team, annual meetings are held to review the Cascading Planning Process, which incorporates all employees into the plan. Many people in the factory have been with the company for 20 to 30 years, and the leadership team knew it would be unrealistic to make all of these changes too quickly.
The company says the Cascading Planning Process eased the fear and skepticism that many people felt and gave them specific roles and tasks to help the company. “The nay-sayers are now mostly on board, which is critical because they help sell other employees, who look to them as role models,” says Jack Sinkler, the vice president of marketing. “Although we have greatly improved, we are far from perfect, but we’ve got a lot of long-term, dedicated employees who would say they are having more fun than they’ve ever had.”
Sinkler points out that the new process cascades down to every employee. He believes the Cascading Planning Process helps each employee understand the value of his or her role in achieving the desired result. For example, it’s a way of making sure that the cleaning staff knows that their job is not simply sweeping and dusting, but increasing quality, making an efficient work environment, and helping create and attract new customers. He says, “People come in here and they are impressed because the maintenance team helps us present the professional, orderly, progressive image that reflects who and what today’s Rheem is all about. This level of detail connects all employees to the planning process and goal achievement.”
When everyone is on board and understands how they impact the objectives, achieving those goals is easier. The company also knows that the changes cannot be made overnight and that it must take small, but consistent steps.
The Operations group makes changes by eliminating costs, improving quality and effectively managing throughput. When the company experiences successes, it rewards employees by recognizing team accomplishments, such as meeting goals or having an exemplary safety record for a specific period.
“There has to be something in it for the employees. Letting employees know they are valued and appreciated helps to create this culture change and achieve the five objectives,” explains Holt. “We’ve done a lot of facility improvements to the bathrooms, break areas and the cafeteria. We’ve added new lighting and put in new wall lockers for the employees. We want our team to know that they are important and we couldn’t achieve our goals without them.”
Communication with all employees is an important element of success in achieving the five objectives. In the factory there are bulletin boards that keep the employees informed and give them the chance to voice ideas or thoughts on processes. At the beginning of every shift, there is a 5-minute meeting to catch up on news and the day’s schedule. This allows the employees to get focused and be aware of the goals for each day.

At Rheem Air Conditionings plant, each unit has a barcode on it that is scanned by every employee that works with it on the assembly line, so they always know which product it is and what parts it needs.

Customer First

Rheem realizes that it will not have a successful business if it does not put the customer first. Everyone in the company needs to understand that what they are doing is, in the end, for the customer. “The leadership team has a simple vision, which is being customer focused, continuously improving and working to the very best of each person’s ability to give customers what they want,” says Doyle Thresher, Fort Smith plant manager.
Restructuring the sales team proved to be a challenge because of changes in distribution and emerging new customer requirements and expectations. The sales team began a planning process to identify the resources needed, the number of customers that needed to be added and the types of customers. Then the department placed the focus on how to help customers be more successful.
“It’s not about how many units the customer is going to buy or how many dollars are spent. If you focus on recruiting the right customers, getting the right marketing plans in place, doing all the training, and making the customer more successful, all the other successes will come,” says Bill Hanesworth, vice president of sales and distribution.
A strong and positive relationship with its national distributor network is critical to the company. The company is committed to supporting an independent distribution channel. It works hard to achieve the relationships by nurturing a partnering culture and close communication with distributors. By constantly analyzing and working with their distributor partners, the company makes sure it is aligned with quality distributors, who it feels will add to the value of the brand and attract the best contractors, who in turn tend to have more satisfied customers. While the company did need to change some long-term distributor relationships, it knew that this would eventually benefit customers and increase market share. “We try to partner with our distribution. We want to be easy to do business with, so we are flexible and we listen,” says Sinkler. “If we make it easier for distributors to sell our products, then the better distributors across the country will want to sell the Rheem and Ruud brands. The power of the brand is in our distributor partners and the quality of service and expertise they bring to their individual markets.”
The company also helps the distributor to service contractors and is more active in developing contractor promotions. “For example, some programs might be targeted toward helping distributors to better leverage the seasonal patterns of their climates and geography,” comments Sinkler. “Chicago seasonality patterns are different than those in Toronto, Texas or California and we have many distributors throughout North America. So, we strive to be responsive to all of them, listen to their needs and try to continually revamp our programs so we can offer meaningful tools that help them succeed and differentiate.”

Air-Conditioning Line

Rheem’s Fort Smith plant opened in 1970 to focus on the air-conditioning side of the business. Doyle Thresher, Fort Smith plant manager, says, “You want to build products and be close to the primary users of your product.” This makes the South an ideal place for an air-conditioning plant.

• The line starts with cardboard with barcodes and labels, which tell the employee the type and size of the unit they are producing, and begins on a roller line with a base pan placed on top.
• The coil and compressor are placed into the unit. The employees plug in the coils and begin brazing.
• The unit moves to the fan table where the grills are assembled with the fan blade and motor, after which the company conducts an initial test for leakage.
• Next, the functional run test area tests every unit. An inspector conducts the electrical safety check. The company checks the contactor and control box by connecting the unit to 24 volts, to a power supply, and to line voltage.
• In the evacuation station, contaminates are removed from the sealed system and the unit receives a refrigerant charge.
• In the final inspection area, employees in a fresh-air booth use a wand detector to check for leaks.
• The unit then moves into the box out area where rating plates and final labels are affixed. Finally, corner posts and boxes package the unit.
• The boxed unit moves through an automatic bander, then to the warehouse. In the warehouse, quality inspectors insert an electronic sniffer wand into a hole punched in the box. If the tool detects refrigerant, the unit is tagged and sent for repairs.

Furnace Line

This line produces 80+ and 90+ efficient units. The 80+ units range from 50,000 BTUs to 150,000 BTUs, in four jacket widths of 14 inches, 17 inches, 21 inches, and 24 inches. The 90+ units also range from 50,000 BTUs to 150,000 BTUs. Modulating furnaces range from 60,000 to 120,000 BTUs in jacket widths of 17 inches, 21 inches and 24 inches.

• This line begins at the jacket machine, which is fully automated to punch holes and bend the cabinet shape.
• When the furnace cabinet is made, it moves into the insulation area where Rheem uses black insulation as a sound barrier and yellow insulation to contain heat.
• The insulated jacket is placed onto a carrier.
• In the furnace blower area, separate from the cabinet line, the scroll sides and blower wraps are welded together to create the blower housing.
• The blower then has transformers, blower labels and the control board installed, and the final wiring of the control board is performed manually.
• Next, the center panel is assembled to the heat exchanger, and the exhaust hole is expanded.
• A final inspection of the heat exchanger ensures it is working properly.
• Moving along in a carrier, the heat exchanger has a limit switch installed, and the blower assembly is installed in the jacket.
• Next, the control panel, draft induced blower motor and the limit switch are wired and the wires from the control board are wire-tied.
• In the burner assembly area, separate from the jacket line, the manifold, gas valve, limit switch, and in-shot burner are assembled to create the burner assembly.
• The burners are manufactured on a 14-stage die, a computer-aided machine with a cycle time of 20 seconds.
• Next, the limit switch, gas valve and pressure switch are wired to the control board and the filter angle and filter are installed.
• The hipot check station hooks the unit up to voltage to make sure there are no shorts and that the unit is wired correctly prior to flame testing.
• In the flame test area, the units are “fired-up” for a quality check. If the unit fails, it is green-tagged and sent to the repair area.
• The units are put into cartons for shipment and an automatic bander uses nylon banding to secure the carton on top and bottom. Heat melts the bands together, and the units are moved to the warehouse.

Commercial Equipment

The commercial equipment line produces three-phase units at 50 and 60 Hz. The products range from 7-1/2 tons to 25 tons and have 150,000 to 400,000 BTUs for air-conditioning and gas units. It also produces heat pumps up to 10 tons and 10 to 50 kW with auxiliary electric.

• The base rails, filter rack, bulk head (center panel), heat exchanger, and compressors are assembled first.
• At the brazing station, employees install sealed refrigerant lines into the unit. Rheem uses four brazers, two for the evaporator coil and two for the condenser coil.
• Next, the sealed refrigerant system is evacuated and filled with 200 to 300 psi of helium. It moves into the fresh-air booth and employees perform a helium leak test using a detector wand.
• As the unit moves on, control panels are installed and the heat exchangers are wired.
• Next, the side and rear panels are installed along with a wiring harness, which is then wired to the unit. Fan motors and blades are assembled to the ventura rings and placed on the unit.
• Employees then evacuate the system and reclaim the helium. The system is charged.
• Painted cabinet parts are installed.
• The unit moves on to the Serv-I-Quip run station. This is a computer- and PLC-based test system that evaluates all the unit’s systems and components.
• The unit is boxed, banded and taken to the warehouse.

Future Plans

In the next few years, Rheem says it will continue to make small steps toward achieving its goals. Some of the bigger issues that the company faces are those that the entire industry is facing, namely the 2006 13-SEER energy efficiency standards and the 2010 R410A refrigerant change. As of Jan. 23, 2006 all air-conditioning products must be 13 SEER or above, meaning 90 percent of the products that Rheem produces will be discontinued. “The challenge is to develop desirable, meaningful features that bring value to our customers and that can differentiate our products above 13 SEER,” comments Jones. “It’s an industry challenge, but its one that Rheem is putting a tremendous amount of research behind.
“We must educate contractors and distributors on how to put more value into each customer contact and to educate the consumer about noise, humidity control and air quality,” he says. Contractors and distributors also need to increase their communication to consumers about issues such as energy costs, the environment, mold, bacteria, and improving indoor air quality for more comfortable, healthier homes and businesses.”
According to Jones, “Our motto to our customers is: ‘Promises Made are Promises Kept.’” Rheem will continue to keep the customer first and make sure that their needs are satisfied, using its five objectives, streamlined PDP, and the Cascading Planning Process. Jones says, “We are building our foundation around simple things, like being dependable and being good at what we do.”


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